Elizabeth Ayoola, investing spokesperson at NerdWallet, explains that “dividends are payments in the form of cash or additional shares that companies make to stockholders periodically.
They can provide passive and consistent income for people who invest in those companies via stock.” Meta paying shareholders dividends is an opportunity for consumers to diversify their investments and earn passive income. “While the tech giant isn’t dishing out the highest dividends, there is potential for growth. If Meta continues growing at its current pace, consumers could see increased dividend payments in the future,” she says.
Author of Quit Like a Millionaire and leading voice in the financial independence retire early (F.I.R.E.) movement, Kristy Chen, says this move to distribute dividends is unusual for a tech company. “They tend to prefer growing their share price through re-investing their profits and expanding…because Facebook has such an enormous market cap, everyone from owners of the individual stock to index investors of the S&P 500 will benefit.”
John Pham, founder of The Money Ninja, is one of those shareholders. “I bought shares during Facebook’s IPO in 2012, so I’m just riding the wave,” he laughs. “This may pressure other public tech companies that are flushed with cash to do the same. Otherwise, these firms may lose investment dollars to companies like Facebook that offer one.”
Will Meta’s move create a ripple effect?Is Meta breaking the mold or serving as a model for other tech companies – including those dealing in AI? Former Stash fintech executive Fazal Yameenventures a well-educated guess. “Clearly, investors and the market love this move because shares are up 20% after the announcement of the dividend and $50 billion in stock buybacks. But anyone looking to buy in now should be aware that those two moves are already priced into the shares. So, you won’t really benefit from them in the short term, given how much the stock price soared.”
Yameen says Meta’s dividend is making waves because it signals to the market that the company is growing up. “One of the major complaints about the new wave of tech companies has been that while they generate tens of billions in revenue, they haven’t distributed any of that to their investors.” The current distribution offers a shift from Meta’s norm, which he says has been to hold on to large cash reserves to acquire other companies or fund research and development. He hopes to see Meta increase the dividend rate in the future.
“So far, 2024 is shaping up to be a very interesting year for equity markets,” says Shen. For her, Meta’s dividend signals a challenge to other tech companies, particularly those driven by AI, to follow suit – and in turn, greater potential than ever for AI to transform the world as we know it.
Source: BBC
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